A.M. Best Affirms Rating of National Insurance Company of Egypt.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--April 9, 2002

A.M. Best Co. has affirmed the A- (Excellent) financial strength rating of National Insurance Company of Egypt and assigned it a negative outlook.

The affirmation is based on the company's excellent capital position and financial strength and strong market presence. Offsetting factors include the challenges the company may face in adjusting to an increasingly competitive market as it liberalises and the company's deteriorating operating performance.

Excellent capital position maintained. Despite a moderate 4.6% reduction in adjusted capital at the end of 2000, capital adequacy was regarded as excellent and consistent with the current rating level as measured by Best's Capital Adequacy Ratio and using a traditional solvency measure (0.4 times). Financial flexibility remained restricted, being solely derived from the company's ultimate parent, the Egyptian government.

Strong market presence retained. The smallest of three state-owned direct insurers, as measured by capital and surplus and premiums, National is the third-largest direct insurer and the leading compulsory motor insurer in the Egyptian market. National retained its 13% share of the Egyptian insurance market in 2000 due to a 9.2% increase in gross premiums, and growth in gross life premiums of 11% and 15% in 1999 and 2000, respectively, has further diversified the overall portfolio. The company's presence is also enhanced through its 120 branch office network and its moderate international presence in the Arab region.

Deteriorating operating performance reported. National's loss ratio increased to 51.2% in 2000 from 37.5% in 1999. Although only marginally above the five-year average of 51%, the non-life technical account has benefited from successive reserve releases between 1997 and 1999, offsetting substantial claims inflation in third-party compulsory motor business (TPL). National's loss ratio in respect of TPL business increased to 91.2% in 2000, and A.M. Best expects further deterioration in this account in 2001 and 2002. Ultimately, this will likely reduce National's return on equity, which fell to 9.5% in 2000, compared with the five-year average of 15.6%.

Competitive challenges exist. The Egyptian government's commitment to liberalise the insurance market by 2003 will intensify what is already a competitive operating environment for National. Although the process has and will continue to be gradual, in the longer-term the Egyptian companies will be required to continue to focus on expense reduction, product development and distribution in a bid to maintain market shares and remain competitive.

Expectations:

- Maintenance of a risk-based capital level that remains supportive of the
current rating level.

- The company will retain its strong position in the Egyptian market despite
economic pressures and competitive challenges associated with liberalisation.

- The company will actively grow its non-motor portfolio of business due to
inadequate pricing and adverse claims development in its compulsory motor book.
This will help to improve the company's operating performance.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.